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Australian shares reached a six-week high before paring gains as stronger-than-expected inflation data dashed hopes for a pause in interest rate hikes.

The dollar jumped and stock gains contracted in the wake of the mid-morning consumer prices report. The S&P/ASX 200 trimmed an early advance of 45 points to 17 points or 0.24 per cent.

Gains in mining and property stocks helped offset pressure from Coles and Woolworths following disappointing trading updates.

What’s driving the market

The share market was clinging to a third day of gains as positive overnight leads from Wall Street were tempered by market-unfriendly inflation data and a plunge in US equity futures after Microsoft and Google missed earnings expectations. The ASX 200 touched its highest level since mid-September.

The market halved its gains after the consumer price index jumped 1.8 per cent in the September quarter, lifting annual headline inflation to 7.3 per cent. Annual trimmed mean inflation climbed to a record 6.1 per cent from 4.9 per cent, defying expectations for a smaller rise to 5.6 per cent.

Markets fully priced in another 25 basis point increase at next week’s RBA meeting. The odds on a 50bp hike rose to 16 per cent.

“Stronger than expected inflation on key metrics will put pressure on the RBA to raise interest rates further, but I doubt it means it goes faster again (i.e. 50bp) near term with another 25bp hike still favoured for next week,” Alex Joiner, chief economist at IFM Investors, tweeted.

The market’s early gains followed a third straight rise on Wall Street. The S&P 500 rose 1.63 per cent to a six-week high.

The prospects for the day deteriorated with trading updates from index heavyweights Microsoft and Alphabet (Google) shortly after this morning’s close. Both companies tanked in after-market trade, dragging US futures deep into the red.

Microsoft sank 6.7 per cent. Alphabet shed 6.58 per cent. S&P 500 futures swooned 39 points or 1 per cent. Nasdaq futures plunged 2.07 per cent.

Last night’s federal budget appeared to have minimal impact, with the Labor government careful to avoid extravagant spending measures that might add to inflationary pressures. Westpac economic spokesman Bill Evans described the budget as “responsible”.

“Spending on new policies, such as childcare subsidies and aged care, only amounts to 0.1 per cent of GDP. That compares with 1.7 per cent in the March budget and nearly 5 per cent during the COVID years,” Evans said.

The chief executive of research group Kalkine said Australia had learned a lesson from last month’s UK mini-budget fiasco, which ultimately led to the downfall of British Prime Minister Liz Truss.

“The first federal budget of the incumbent government was expected to be on the safer and less experimental side, and it did not fail on that count. The thing is, all governments across the world have learned a lesson from the UK mini-budget fiasco and the bond market and political upheaval that it triggered,” Kalkine CEO Kunal Sawhney said.

Going up

Costa Group jumped 11.21 per cent after US private-equity firm Paine Schwartz took advantage of recent price weakness to take a 13.78 per cent stake in the firm. Broker Citi said Paine’s shareholding was a long-term investment, rather than the start of a takeover. The share price hit a seven-year low following a profit downgrade earlier this month.  

Bega Cheese climbed 4.78 per cent after reaffirming full-year guidance as
CEO Paul van Heerwaarden prepared to step down. Chief Operating Officer Pete Findlay will replace van Heerwaarden as chief of the dairy producer.

Tabcorp edged up 1.28 per cent on news revenue rebounded 18.7 per cent last quarter from a Covid-affected prior corresponding period. The group’s digital revenue market share increased to 24.7 per cent from 23.9 per cent in Q4 FY22.

Positive trading updates lifted miners Ramelius Resources and Mineral Resources. Ramelius gained 5.2 per cent after reaffirming full-year gold production guidance. Mineral Resources put on 3.4 per cent on news production volumes increased 8 per cent from the previous quarter.

The real estate investment trust sector rose for a third session as the cost of long-term borrowing continued to recede. The yield on ten-year Australian government bonds fell 11 basis points this morning, dropping under 4 per cent for the first time in a week..

Centuria Industrial REIT gained 3.39 per cent, Stockland 3.11 per cent and Goodman Group 2.54 per cent.

Aside from Goodman, the pick of the heavyweights this morning were gold miner Newcrest +1.73 per cent, pokie-maker Aristocrat Leisure +1.49 per cent and retail conglomerate Wesfarmers +1.14 per cent.

Going down

Medibank plunged 15.69 per cent after scrapping its growth forecast following a cyber-attack. The health insurer withdrew its FY23 outlook for policyholder growth, citing the “uncertain impact” of the attack. The firm expects earnings to take a hit of at least $25-$35 million as it deals with fallout from the incident.

Supermarket Coles slipped 2.83 per cent as a 1.3 per cent lift in first-quarter sales was overshadowed by news price inflation climbed to 7.1 per cent from 4.3 per cent the previous quarter.

“Coles’ businesses are not immune to the inflationary cost pressures, including the impact from increased logistics and fuel costs, salary and wages and construction costs on capital expenditure projects,” the company said.

Rival Woolworths dropped 2.95 per cent on news Australian food sales declined 0.5 per cent in the first eight weeks of the fiscal year. New Zealand sales fell 1 per cent. Big W showed strong sales growth, expanding by almost 30 per cent.  

Codan slumped 15.37 per cent on news African demand for metal detectors was unlikely to recover this fiscal year. Africa is the firm’s biggest client base. Global sales from the Minelab division were expected to fall to $70-$80 million this half from $138 million in the same period last year.

Other markets

Hong Kong’s Hang Seng shed another 0.46 per cent during a mixed morning on Asian markets. The Asia Dow advanced 0.62 per cent. China’s Shanghai Composite inched up 0.04 per cent. Japan’s Nikkei put on 0.92 per cent.

Oil reversed overnight gains as falling US futures dented risk appetite. Brent crude retreated 99 US cents or almost 1.1 per cent to US$92.53 a barrel.

Gold dipped US$1.10 or 0.1 per cent to US$1,656.90 an ounce.

The dollar firmed 0.08 per cent to 63.89 US cents.

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